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Human capital portfolios

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  • Pedro Silos
  • Eric Smith

Abstract

This paper assesses the trade-off between acquiring specialized skills targeted for a particular occupation and acquiring a package of skills that diversifies risk across occupations. Individual-level data on college credits across subjects and labor-market dynamics reveal that diversification generates higher income growth for individuals who switch occupations whereas specialization benefits those who stick with one type of job. A human capital portfolio choice problem featuring skills, abilities, and uncertain labor outcomes replicates this general pattern and generate a sizable amount of inequality. Policy experiments illustrate that forced specialization generates lower average income growth and lower turnover, but also lower inequality.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Atlanta in its series Working Paper with number 2012-03.

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Date of creation: 2012
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Handle: RePEc:fip:fedawp:2012-03

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  1. Gervais, Martin & Livshits, Igor & Meh, Césaire, 2008. "Uncertainty and the specificity of human capital," Journal of Economic Theory, Elsevier, vol. 143(1), pages 469-498, November.
  2. Philipp Kircher & Iourii Manovski & Fane Nadja Groes, 2009. "The U-Shapes of Occupational Mobility," 2009 Meeting Papers 26, Society for Economic Dynamics.
  3. Gathmann, Christina & Schönberg, Uta, 2007. "How General Is Human Capital? A Task-Based Approach," IZA Discussion Papers 3067, Institute for the Study of Labor (IZA).
  4. Todd Schoellman, 2010. "The Occupations and Human Capital of U.S. Immigrants," Journal of Human Capital, University of Chicago Press, vol. 4(1), pages 1-34.
  5. Theodore Papageorgiou, 2011. "Worker Sorting and Agglomeration Economies," 2011 Meeting Papers 660, Society for Economic Dynamics.
  6. Gueorgui Kambourov & Iourii Manovskii, 2009. "Occupational Mobility and Wage Inequality," Review of Economic Studies, Oxford University Press, vol. 76(2), pages 731-759.
  7. Michael P. Keane & Kenneth I. Wolpin, 1995. "The career decisions of young men," Working Papers 559, Federal Reserve Bank of Minneapolis.
  8. Shintaro Yamaguchi, 2012. "Tasks and Heterogeneous Human Capital," Journal of Labor Economics, University of Chicago Press, vol. 30(1), pages 1 - 53.
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